UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-KSB

ANNUAL REPORT TO SECTION 13 OR SECTION 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year ended:  December 31, 2004

Commission File Number: 333-000-50373

SPECTRUM SCIENCES & SOFTWARE HOLDINGS CORP.

 (Exact name of Registrant as specified in its charter)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X]  NO [  ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [  ]

The Registrant’s revenues for the year ended December 31, 2004 were $11,133,748.

The aggregate market value of the Registrant’s common stock held by non-affiliates of the Registrant as of April 12, 2005 (based on the closing sale price of U.S. $2.00 per share of the Registrant’s common stock, as reported on the Over the Counter Bulletin Board on that date) was approximately U.S. $71,170,750 (based on 35,585,375 shares).  Common stock held by each officer and director and by each person known to the Registrant to own 5% or more of the outstanding common stock has been excluded in that those persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares of the Registrant’s common stock outstanding as of April 12, 2005 was 38,969,300.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Transitional Small Business Disclosure Format (Check one): YES[  ]  NO [X]

TABLE OF CONTENTS

PART 1

FORWARD-LOOKING STATEMENTS

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ITEM 1.  DESCRIPTION OF BUSINESS

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ITEM 2.  DESCRIPTION OF PROPERTY

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ITEM 3.  LEGAL PROCEEDINGS

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ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

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PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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ITEM 6.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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ITEM 7.  FINANCIAL STATEMENTS

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ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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ITEM 8A.  CONTROLS AND PROCEDURES

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ITEM 8B.  OTHER INFORMATION

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PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

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ITEM 10. EXECUTIVE COMPENSATION

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ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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ITEM 13.  EXHIBITS

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ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

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  FORWARD-LOOKING STATEMENTS

Except for historical information, this report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934.  Such forward-looking statements involve risks and uncertainties, including, among other things, statements regarding our business strategy, future revenues and anticipated costs and expenses.  Such forward-looking statements include, among others, those statements including the words “expects,” “anticipates,” “intends,” “believes” and similar language.  Our actual results may differ significantly from those projected in the forward-looking statements.  Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report.  We undertake no obligation to publicly release any revisions to the forward-looking statements or reflect events or circumstances taking place after the date of this document.

PART I

ITEM 1.  DESCRIPTION OF BUSINESS

SUMMARY OF CORPORATE HISTORY

Spectrum Sciences & Software Holdings Corp. (“Spectrum”, the “Company” or the “Registrant”) was formed under the name Silva Bay International, Inc. (a Delaware corporation) on August 26, 1998 for the purpose of locating and recovering rare and valuable aircraft.  Silva Bay International, Inc. did not have operations or revenues until April 2003, at which time the Company acquired Spectrum Sciences & Software, Inc. (“SSSI”), a Florida corporation.  On April 3, 2003, the Company acquired all of the issued and outstanding common stock of SSSI, in exchange for 2,500,000 shares of its common stock (taking into account a forward two-for-one stock split on April 9, 2003).

On April 8, 2003, the Company changed its name to Spectrum Sciences & Software Holdings Corp. and on April 9, 2003 the National Association of Securities Dealers (NASD) changed the Company trading symbol from “SIVY” to “SPSC”.  On April 9, 2003, the Company forward split its common stock at a ratio of two-to-one.  On December 5, 2003, the NASD approved the Company’s common stock for quotation on the Over the Counter (OTC) Bulletin Board electronic quotation system.  The Company’s stock trades on the OTC Bulletin Board electronic quotation system under the symbol “SPSC.”

SSSI was formed on October 8, 1982 for the purpose of providing innovative, full-service, quality turn-key solutions to the complex and diverse engineering, science and technological support service industry as well as the production of specialized and standard ground support equipment for the United States Department of Defense.  Headquartered in Fort Walton Beach, Florida, the Company has three reportable segments – management services, manufacturing, and engineering and information technology services.  Management services include providing engineering, technical, and operational services in the area of defense range management specializing in bombing and gunnery training range operation and maintenance.  Manufacturing operations includes the design and construction of munitions ground support equipment and containers for the shipping and storage of munitions and equipment.  The Company’s engineering and information technology services segment consists of the sale of engineering and information technology services developed to assist in hazard management and weapons impact analysis.

On February 1, 2005, the Company acquired all of the outstanding capital stock of M&M Engineering Limited (“M&M”) from EnerNorth Industries Inc. for $6,768,202 in cash.  M&M is a Canadian corporation formed in 1968 that provides mechanical contracting and steel fabrication services to the industrial and offshore energy sector.

On February 25, 2005, the Company acquired all of the issued and outstanding capital stock of Coast Engine and Equipment Co., Inc. (“CEECO”) in exchange for cash and shares of the Company’s common stock, which is payable by the Company over a three-year period in an aggregate amount of up to $900,000.  The aggregate amount payable by the Company is subject to certain adjustments, including, without limitation, adjustments based on CEECO’s earnings during such three year period.  CEECO is a Florida-based company formed on March 28, 1989 that provides a diversified array of ship repair, metal fabrication and design services to both commercial and governmental clients.

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BUSINESS

Spectrum Sciences & Software, Inc.

SSSI, which was the only subsidiary of Spectrum during 2004, provides varied engineering, manufacturing and technological support services, as well as the production of specialized and standard ground support equipment for the United States Department of Defense and other governmental and commercial contractors.  SSSI provides its customers with diversified capabilities in a number of advanced technologies.  Its professional competencies include all the disciplines and technology applications encompassed in its three operating divisions:

1)  Management Services. SSSI has a long history of range management/operations & maintenance (O&M) services provided under our Management Services Division.  As a core business area, SSSI operates and maintains military training ranges and associated infrastructure and assets.  The Company’s full complement of O&M services include:  range control, range and airbase security, range safety, air traffic control/meteorological services, facilities and infrastructure maintenance, construction, fire fighting and protection, vehicle maintenance and operations, target design and construction, transient aircraft operations, and water/sewage treatment.  SSSI operated one of the world’s largest air-to-ground training ranges (the Barry M. Goldwater Range) located near Gila Bend, Arizona through September 30, 2004.  Complementing our range O&M services, SSSI has diversified into other DoD support arenas.  SSSI currently provides for the scheduling and management of an aircraft “wash rack” function for the USAF Special Operations Command (AFSOC).  It maintains this operation in support of these high value aircraft assets at three separate locations that are all part of the extensive Eglin Test and Training range complex in northwest Florida.

2)  Manufacturing Division.  SSSI’s Manufacturing Division, an ISO 9001:2000 qualified manufacturer, focuses on the design, development, manufacturing, and systems integration of aerospace ground support equipment and missile, munitions, material handling equipment and shipping and storage containers and a variety of precision parts for the sustaining of military equipment.  As one of SSSI’s fastest growing divisions, SSSI’s Manufacturing Division has delivered over 500 DoD contracts without a single delivery schedule or technical discrepancy to date.  It has also provided manufactured products to commercial clients that include Boeing, Lockheed-Martin and L-3 Communications.  In March 2004, the Manufacturing Division became an approved vendor to two major international DoD contractors.

3)  Engineering and Information Technology Services.  Since its inception, SSSI has been performing sophisticated and specialty Engineering Services for a variety of government and commercial clients.  These services include hazard analysis, modeling and simulation, range planning, air space planning, and environmental analyses.  SSSI’s modeling and simulation solutions provide its clients with the ability to analyze and/or visualize complex technical data.  Similarly, its Information Technology Services specialize in the design, development, maintenance and support of software applications utilized in the analysis and visualization of complex technical data.  These applications support a broad range of user requirements that include weapon system range safety planning, environmental studies, facility evaluations, and noise and airspace analyses.

M&M Engineering Limited

M&M is a provider of a complete range of mechanical contracting and steel fabrication services to the industrial and offshore energy sector.  M&M's business includes fabrication and installation of process piping, installation of production equipment, steel tank erection, and industrial maintenance. M&M also operates through its wholly owned subsidiary M&M Offshore Limited, which provides specialized welding services, fabrication and servicing facilities to the offshore sector.  M&M operates from a company-owned fifteen-acre property with a 47,500 square foot fabrication facility, strategically located in Newfoundland's capital city of St. Johns, to serve both the thriving mining and oil industries in the area.  Major clients include ExxonMobil,  Petro Canada, Halliburton, Husky Energy, Inco Ltd, Iron Ore Company of Canada, North Atlantic Refining Ltd, Abitibi Consolidated and Corner Brook Pulp and Paper.

Coast Engine and Equipment Company, Inc.

CEECO has been in business and operated since March 1, 1991. Its 15,000 sq ft facility is located in a prime location on Florida's east coast in world famous Port Canaveral, the second busiest cruise ship port in the world.

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 This location is centrally positioned providing access to Patrick Air Force Base, Kennedy Space Center, six cruise terminals, and Cocoa Beach, and is less than an hour from Orlando. CEECO's specialties include a full array of electrical and electronic repair, equipment and machinery repair and overhaul, HVAC and refrigeration servicing and repair, pipe fabrication and installation, certified welding services, metal and sheet metal fabrication and installation, custom insulation services, custom flooring services and machinery. The custom machine shop employs skilled craftsmen, provides engineering and design support, mobile welding and fabrication shop along with onsite and in-house management teams. Long-term customers include the U.S. Navy, U.S. Coast Guard, Military Sealift Command, Rinker Cement Plant and Disney Cruise Lines.

COMPETITION

The market for the Company’s products is highly competitive for all three subsidiaries.

SSSI faces a variety of domestic and foreign competitors including divisions of Ahntech, Arcata Associates, Artic Slope Manufacturing Technology, Tybrin, Science Applications International Corp., and Lockheed-Martin.  Many of SSSI’s competitors are larger than it and have substantially greater financial and other resources.

SSSI competes on the basis of quality product and services offerings, price, product and systems quality, technology and ongoing customer service and support. Its ability to compete for defense contracts depends on a variety of factors, including:

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Corporate and key personnel backgrounds and qualifications;

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The effectiveness and innovation of our research and development programs;

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Proven past performance history;

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Ability to offer better program performance than our competitors at a lower cost; and

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The readiness of SSSI’s facilities, equipment and personnel to undertake the programs for which it competes.

In programs where SSSI is the sole-source provider, other suppliers may compete against it only if the customer chooses to reopen the particular program to competition.  It is estimated that approximately 12% of our total manufacturing contract revenue for the year ended December 31, 2004 was derived from sole-source business.

Furthermore, SSSI’s Engineering and Information Technology Services Division contains advanced technology derived from internal research and development that creates high barriers to entry.  Since January 1, 1998, the Company has spent approximately $725,700 in research and development, in large part, in support of advanced technology utilized in this division.

Likewise M&M and its subsidiary M&M Offshore Limited face a wide array of competitors across all three of it’s core capabilities.  In the arena of industrial mechanical construction, its major competitors include Comstock Canada, Ltd., Black & McDonald Ltd., and Canadian Process Services.  Competitors in the industrial maintenance sector include Horton Steel, MBB, and Babcock & Wilcox.  Finally, in shop fabrication work, M&M often competes most frequently with Metal World, Ltd., CSI Fabricators, and Steelfab, Ltd.

CEECO currently finds itself in a limited competitive market with its major competitor being Standard Marine.  More important to CEECO is the fact that its government clients are steering more competitive work to minority “Hub Zone” businesses on a direct award or limited competition basis.  With this fact in mind, CEECO has formed an alliance with a Tampa, Florida based “Hub Zone” business to enhance its ability to be able to continue to compete in this environment.

SUPPLIERS AND MATERIALS

Spectrum’s in-house manufacturing primarily consists of assembly of purchased parts.  Accordingly, its does not use significant amounts of raw materials. The Company purchases manufactured component parts for assembly from various independent suppliers.  It also “cuts”, “bends”, and “welds” purchased metal components.   The manufacturing division operates under a “Lean” manufacturing process and maintains minimum inventories of raw

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materials and aluminum and steel. These parts are normally not purchased under long-term contracts unless a long-term sales contract with one of its customers requires it.  Spectrum is not dependent on any one supplier and maintains back-up suppliers for all critical components.  Further, it utilizes competitive pricing among its suppliers and vendors to obtain the best value for the customer’s dollar.  The Company does not consider the prices of its purchased component parts to be volatile.  However, any delay in its suppliers’ abilities to obtain necessary parts may affect its ability to meet customer production needs.

Some of the Company’s principal suppliers are Tubular Steel, Alro Metals, Dealers Supply, Home Depot, Ingersol-Rand, McMaster-Carr and Aaxico.

REGULATORY MATTERS AND GOVERNMENT CONTRACTS

Substantially all of Spectrum’s contract revenue for the fiscal years ended December 31, 2004 and 2003 resulted from contracts with the Department of Defense, prime contractors that identified the Department of Defense as the ultimate purchaser or other United States Government agencies.  United States Government business is performed under fixed-price contracts.

Under U.S. Government regulations, certain costs, including certain financing costs, portions of research and development costs, lobbying expenses, certain types of legal expenses and certain marketing expenses related to the preparation of bids and proposals, are not allowed for pricing purposes and calculation of contract reimbursement rates under flexibly-priced contracts. The U.S. Government also regulates the methods under which costs are allocated to U.S. Government contracts.  Spectrum is subject to a variety of audits performed by U.S. Government agencies.  The Defense Contract Audit Agency, or DCAA, performs these audits on behalf of the U.S. Government.

U.S. Government contracts are, by their terms, subject to termination by the U.S. Government for either its convenience or default by the contractor.  Fixed-price contracts provide for payment upon termination for items delivered to and accepted by the U.S. Government and, if the termination is for convenience, for payment of fair compensation of work performed plus the costs of settling and paying claims by terminated subcontractors, other settlement expenses and a reasonable profit on the costs incurred.  If a contract termination is for default, however,

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The contractor is paid an amount agreed upon for completed and partially completed products and services accepted by the U.S. Government;

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The U.S. Government is not liable for the contractor’s costs with respect to unaccepted items, and is entitled to repayment of advance payments and progress payments, if any, related to the terminated portion of the contract; and

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The contractor may be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source.

In addition to the right of the U.S. Government to terminate, U.S. Government contracts are conditioned upon the continuing availability of Congressional appropriations.  Congress usually appropriates funds for a given program on a September 30 fiscal year basis, even though contract performance may take many years.  Consequently, at the outset of a major program, the contract is usually partially funded and additional monies are normally committed to the contract by the procuring agency only as appropriations are made by Congress for future fiscal years.

INTELLECTUAL PROPERTY

SSSI owns the design, certain algorithms, processing procedures and source code to our mainstay software applications, Safe Range and Safe Borders. We also license various other Geographic Information System (GIS) technologies used in and distributed within the executable versions of our software applications. In a recent challenge concerning source code rights by the U.S. Navy, SSSI successfully had software source code ownership issues adjudicated by our Contracting Officer and legal department at the USAF Air Combat Command (ACC).  

We believe that the intellectual property rights used in our software applications were independently developed or duly licensed by us or by the technology companies who supplied portions of our software systems.

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We are in the process of registering the Safe Range and Safe Borders trademarks and have secured numerous, applicable domain names to ensure market entry when appropriate. We believe that the “Safe Range” trade name connotes the maturity and, most importantly, the perfect safety record, associated with our Safe Range software application, which has been subject to over twenty (20) years of progressive enhancements and improvement.  Our trade names, “Safe Range” and “Safe Borders,” are prominently displayed on all physical media, CDs, briefings, documentation, etc., as well as all electronic media associated with the individual software products. We intend to maintain our trademarks and registrations (when complete) and all internet domain names now registered. We are not aware of any material claims of infringement or other challenges to our right to use the “Safe Range” or “Safe Borders” trademarks in the United States.

STATUS OF NEW PRODUCT DEVELOPMENT

Spectrum has continued to enhance the technical functionality of the existing application by focusing on initiatives generated through our on-going market research. Safe Borders has continued to be expanded through the use of more robust methodologies and simulations.  First and second quarter calendar year 2005 activities related to Safe Borders include securing a significant teaming agreement with a major systems integrator pursuing the Americas Shield Initiative (ASI) as a Prime contractor. The ASI is a Border Patrol initiative which will first retrofit and upgrade the existing Border Patrol Integrated Surveillance Intelligence System (ISIS) used on the U.S. northern border with Canada and then completely reengineer this system. We are in various stages of technical and business discussions with three potential Primes while establishing communications with a number of second tier Systems Integrators for the same procurement. We would anticipate that any teaming agreement would include provisions for Safe Borders software licensing revenues, support and maintenance and Border Patrol tailoring revenue, as well as on-going software module development/integration and border security expertise revenues. We would like to position ourselves in nonexclusive, subcontract teaming agreement(s) for the ASI procurement, but this may not be possible.

In addition, we have completed the first round of working group meetings with border control/law enforcement agencies in Arizona and are scheduling a second round of follow-up, due diligence meetings with these agencies. These meetings have provided Spectrum with access to extensive border agency/law enforcement expertise required of any ASI program team member.

Spectrum conducted a Safe Borders presentation/demonstration at the Customs and Border Protection (CBP), Applied Technology Division and Office of Border Patrol (OBP) sections at the invitation of the Acting Assistant Commissioner of the CBP in November 2004. Safe Borders now has the favorable exposure with appropriate CBP, Border Patrol and ASI personnel. In addition, the OBP has requested that we suspend our due diligence activities with field Border Patrol personnel in anticipation of the pending ASI procurement (i.e., the “blackout” period prior to the release of the formal request for proposal).  

RESEARCH & DEVELOPMENT EXPENDITURES

The Company spent approximately $225,700 for Research and Development expenditures in 2004 (approximately 65% of which is associated with our Safe Borders development efforts) as compared to an expenditure of approximately $71,400 in 2003.

MARKETING STRATEGY

Spectrum’s marketing and business development strategies are focused on accentuating our individual strengths in each profit area while we exploit opportunities for long-term, high-margin growth in new areas of Information Technology, Engineering Services and Manufacturing.  We are dedicated to incremental, sustained growth of our business areas, product lines, and services while continuously improving on the internal and external processes which govern the quality of SSSI products and services.

Manufacturing

Spectrum plans to continue our current marketing efforts to the Department of Defense for additional Aircraft and Munitions Support Equipment.  During 2004 we added over 12 different product lines to our list of items that we are certified to build for DoD.  We will continue to market our products to major defense contractors; currently we are a qualified vendor for such companies as Lockheed Martin, General Dynamics, ARINC and numerous local

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companies.  We will also continue to add product lines to support the major weapons systems that these companies provide to DoD.  We are currently producing products to support U.S. Foreign Military Sales (FMS), an area that we believe has great growth potential, and we intend to actively pursue these FMS requirements.  We continue to support Field Military units in their immediate requirements through our Web Site and attendance at annual conferences.  Our long term goals are to acquire multiple year contracts for all products and services that will enhance our profitability and stabilize our continued growth.

We plan to explore ways to diversify our manufacturing efforts by expanding our products for the commercial market.  Currently we are working on three different commercial products and intend to sponsor a Spectrum Innovation Day to explore these and other commercial products.

Our strategy also includes partnering with a small business that is currently classified as a “Small Disadvantage Business” by certain governmental and commercial clients.  Such classification allows the small business to secure various contracts that larger contractors, such as the Company, may not qualify for.  Pursuant to our partnering relationship with the small business, we are afforded the opportunity to perform various services as a subcontractor for contracts secured by the small business that the Company would not otherwise have the opportunity to bid for.

Safe Borders

Spectrum plans to license the Safe Borders technology where the technology applies to a very specific mission area. Example mission areas would be “Illegal immigration on the southern US border”, “Harbor/port surveillance and protection”, and “Search and rescue”. Upon licensing the technology to a government agency identified with the particular mission area, the Safe Borders application would be specifically tailored to that mission area creating another on-going revenue stream.

In addition, the Company plans to partner with one or more large System Integration/Defense contractors to:

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Provide access to potential customers; and

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Provide major systems integration credibility for the myriad of potential systems integration activities that could surround the implementation of the Safe Borders application.

Working with differing integrators may also provide a Safe Borders “branding”/licensing opportunity.

ENVIRONMENTAL MATTERS

Spectrum’s management services and manufacturing operations include the use, generation and disposal of hazardous materials.  The Company is subject to various U.S. federal, state and local laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants into the air and water, the management and disposal of hazardous substances and wastes, the cleanup of contaminated sites and the maintenance of a safe workplace.  Spectrum believes that it has been and is in substantial compliance with environmental laws and regulations and that it has no known liabilities under environmental requirements that it would expect to have a material adverse affect on its business, results of operations or financial condition.  In the past three years, Spectrum has not incurred material costs relating to environmental compliance.

EMPLOYEES

As of December 31, 2004, SSSI had approximately 65 employees.  Approximately 51% of its employees are engaged in manufacturing, 11% are engaged in engineering, research and development, 20% are engaged in management services, and 18% are engaged in sales, marketing, product support and general administration. None of the Company’s employees are represented by a union or are covered by a collective bargaining agreement.  All of SSSI’s employees are based in the United States.  The Company considers its current employee relations to be satisfactory.  M&M Engineering Limited currently has approximately 70 employees and approximately 70% of these employees are covered by a collective bargaining agreement.  CEECO has a total of 13 employees and none of them are covered by a collective bargaining agreement.

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